Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Investor Presentation (November 2016)
31 slides from Donegal's investor presentation, November 2016
Slide 1: Investor Presentation November 2016
NASDAQ: DGICA/DGICB There when it matters most. www.donegalgroup.com Investor Presentation | November 2016
Slide 2: Safe Harbor
SAFE HARBOR The Company bases all statements made in this presentation that are not historic facts on its current expectations. These statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and involve a number of risks and uncertainties. Actual
Slide 3: What Is Donegal Group?
WHAT IS DONEGAL GROUP? Insurance holding company with mutual affiliate pursuing an effective strategy in regional insurance markets NASDAQ: DGICA/DGICB Corporate Headquarters Marietta, Pennsylvania • Regional property and casualty insurance group 21.2 million shares outstanding – 21 Mid-Atlantic, Mi
Slide 4: Structure Provides Stability to Pursue Successful Long-Term Business Strategy
STRUCTURE PROVIDES STABILITY TO PURSUE SUCCESSFUL LONG-TERM BUSINESS STRATEGY Public Donegal Mutual • Outperform industry in service, stockholders Insurance Company profitability and book value growth • Drive revenues with organic growth Donegal Group Inc. and opportunistic affiliations • Focus on m
Slide 5: Three and Nine Months Ended 9/30/2016: Strong Financial Results
THREE AND NINE MONTHS ENDED 9/30/2016: STRONG FINANCIAL RESULTS Net Written Premiums Net Income Annualized ROAE $600.0 +8.1% $30.0 +32.8% +2.0 pts. 9.0% $520.3 7.9% $25.2 8.0% $500.0 $481.1 $25.0 7.0% (0.8 pts.) $19.0 5.9% $400.0 $20.0 6.0% 5.2% $300.0 +8.2% $15.0 (15.4%) 5.0% 4.4% 4.0% $200.0 $158.
Slide 6: Nine Months Ended 9/30/2016 Highlights
NINE MONTHS ENDED 9/30/2016 HIGHLIGHTS • 8.1% increase in net written premiums 8.2% increase for Q3 2016 – Represents a combination of 12.1% growth in commercial lines net premiums written and 5.0% growth in personal lines net premiums written • 95.6% statutory combined ratio* 99.5% for Q3 2016 – Co
Slide 7: Drive Revenues with Organic Growth and Opportunistic Affiliations
DRIVE REVENUES WITH ORGANIC GROWTH AND OPPORTUNISTIC AFFILIATIONS Net Written Premiums $629 Michigan (dollars in millions) Sheboygan $579 Peninsula $533 Le Mars $496 Southern $454 Atlantic States $392 $365 $363 $302 $307 $314 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USD in millions Dec
Slide 8: Underwriting Profitability to Enhance Margins
UNDERWRITING PROFITABILITY TO ENHANCE MARGINS Personal Lines Loss Ratio Commercial Lines Loss Ratio 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2011 2012 2013 2014 2015 Nine 2011 2012 2013 2014 2015 Nine Months Months Ended Ended 9/30/2016 9/30/2016 Donegal SNL P&C
Slide 9: Maintain Multifaceted Regional Growth Strategy
MAINTAIN MULTIFACETED REGIONAL GROWTH STRATEGY • $628 million full year 2015 and $520 million for nine months ended 9/30/16 in net premiums written across 21 states in four operating regions – Over $800 million in annual direct premiums written for insurance group* • 10 M&A transactions since 1988 •
Slide 10: Strategic Efforts to Balance Business Mix
STRATEGIC EFFORTS TO BALANCE BUSINESS MIX Net Written Premiums by Line of Business • Commercial lines = (First Nine Months of 2016) 43% of NWP for Third Quarter 2016 Homeowners – Commercial lines renewal premium Workers' Comp 18% increases in 3-5% range 16% Other Personal 3% – Ongoing emphasis on ne
Slide 11: Emphasize Growth in Commercial Lines
EMPHASIZE GROWTH IN COMMERCIAL LINES 100.0% • 94.3% statutory combined ratio for nine months ended 9/30/16 95.0% 90.0% • Expand core Donegal products in newer regions 85.0% • Growth focus on accounts with premiums in $10,000 to $75,000 range 80.0% 75.0% • Expand appetite within classes and lines alr
Slide 12: Focus on Personal Lines Profitability
FOCUS ON PERSONAL LINES PROFITABILITY • 99.9% statutory combined ratio for nine months ended 9/30/16 • Focus on the preferred and superior risk markets • Underwriting initiatives: – Modest rate increases in virtually every jurisdiction – Expand use of predictive modeling – Property inspections – See
Slide 13: Organic Growth Centered on Relationships with ~2,400 Independent Agencies
ORGANIC GROWTH CENTERED ON RELATIONSHIPS WITH ~2,400 INDEPENDENT AGENCIES • Ongoing objectives: • Continuing focus on commercial lines growth: – Achieve top-three ranking within appointed – Emphasize expanded commercial lines products agencies in lines of business we write and capabilities in curren
Slide 14: Support Agents with Best-in-Class Technology
SUPPORT AGENTS WITH BEST-IN-CLASS TECHNOLOGY ClaimsCenter BillingCenter ImageRight Call Center Service Center www.donegalgroup.com 14
Slide 15: Drive Increased Efficiency with Automation
DRIVE INCREASED EFFICIENCY WITH AUTOMATION Direct Premiums per Employee • Current infrastructure can $1,000 support premium growth (USD in 000s) $900 • Premiums per employee rising $800 due to technology systems $700 • Claims system allows more rapid $600 and efficient claims handling $500 • Mutual
Slide 16: Enhance Underwriting Profitability to Improve Operating Margins
ENHANCE UNDERWRITING PROFITABILITY TO IMPROVE OPERATING MARGINS • Sustain pricing discipline and conservative underwriting • Manage exposure to catastrophe/unusual weather events – Reinsurance coverage in excess of a 200-year event • Link employee incentive compensation directly to underwriting perf
Slide 17: Employ Sophisticated Pricing and Actuarial Tools
EMPLOY SOPHISTICATED PRICING AND ACTUARIAL TOOLS • Predictive modeling tools enhance our ability to appropriately price our products – Sophisticated predictive modeling algorithms for pricing/tiering risks – Territorial segmentation and analysis of environmental factors that affect loss experience –
Slide 18: Maintain Emphasis on Reserve Adequacy
MAINTAIN EMPHASIS ON RESERVE ADEQUACY • Reserves at $322.1 million at YE 2015 Established Reserves at Year-end – Midpoint of actuarial range Reserve Range at 12/31/2015 Low $293.3 million – Conservative reinsurance program limits High $353.7 million volatility Selected at midpoint • Emphasis on fast
Slide 19: Maintain Conservative Investment Mix
MAINTAIN CONSERVATIVE INVESTMENT MIX $903.7 Million in Invested Assets* (at September 30, 2016) • 90% of portfolio invested in fixed Mortgage Backed maturities Securities (MBS) Corporate 29% – Effective duration = 4.1 years 20% – Tax equivalent yield = 3.0% • Emphasis on quality Treasury and Agency
Slide 20: Donegal Financial Services Corporation
DONEGAL FINANCIAL SERVICES CORPORATION Bank Investment = 5% of Invested Assets • DFSC owns 100% of Union Community Bank – Serves Lancaster County (location of Donegal headquarters) with 15 branch offices • Expanded via acquisition in 2011 – Added scale to banking operation – Enhanced value of histor
Slide 21: Union Community Bank
UNION COMMUNITY BANK 48% owned by Donegal Group Inc. • 2015 financial results: – $508 million in assets at YE 2015 – $2.7 million in 2015 net income • Excellent capital ratios at September 30, 2016: Tier 1 capital to average total assets 16.56% Tier 1 capital to risk-weighted assets 22.37% Risk-base
Slide 22: Long-Term Growth Strategy
LONG-TERM GROWTH STRATEGY • Maximize benefits of regional business approach • Outperform industry in service, profitability and book value growth • Drive revenues with organic growth and opportunistic affiliations • Focus on margin enhancements and investment contributions www.donegalgroup.com 22
Slide 23: Strong Capital + Solid Plan to Drive Results
STRONG CAPITAL + SOLID PLAN TO DRIVE RESULTS Book Value Plus Cumulative Dividends • Rated A (Excellent) by A.M. Best – Debt-to-cash/investments of $20.00 approximately 8.1% – Premium-to-surplus of approximately $15.00 1.5-to-1 $10.00 • Dividend yield of 3.4% for Class A shares $5.00 • Authorization
Slide 24: Valuation vs. Peers (at 11/7/2016)
VALUATION VS. PEERS (AT 11/7/2016) Price/ Tangible Book MRY (%) 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 DGICA BWINB EMCI HALL UFCS NAVG KMPR Average THG SAFT SIGI CINF Price/ Tangible Book MRQ (%) 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 BWINB DGICA EMCI HALL THG UFCS KMPR
Slide 25: Favorable Operating Performance vs. Peer Group
FAVORABLE OPERATING PERFORMANCE VS. PEER GROUP Net Written Premium Growth Return on Average Equity 12.0% 9.0% 8.0% 10.0% 7.0% 8.0% 6.0% 5.0% 6.0% 4.0% 4.0% 3.0% 2.0% 2.0% 1.0% 0.0% 0.0% Net Written Premium Net Written Premium Net Written Premium ROAE LTM (%) ROAE YTD (%) ROAE MRQ (%) Growth MRY (%)
Slide 26: Key Takeaways
KEY TAKEAWAYS • Well-established regional insurance carrier with a diverse book of business of both personal and commercial lines • Organic top-line growth exceeding that of our peer group • Improved YTD 2016 underwriting performance in nearly every operating metric www.donegalgroup.com 26
Slide 27: Supplemental Information
SUPPLEMENTAL INFORMATION www.donegalgroup.com 27
Slide 28: Structure Provides Flexibility and Capacity
STRUCTURE PROVIDES FLEXIBILITY AND CAPACITY Public 45.8%(1) 54.2%(1) Donegal Mutual Stockholders Insurance Company Donegal Group Inc. 48.2% 51.8% 20% Donegal Financial Services Corporation POOLING 100% AGREEMENT Reinsurance 100% Union Community Bank 80% 100% 100% 100% 100% 100% 100% Sheboygan Southe
Slide 29: History of Contributing Affiliations
HISTORY OF CONTRIBUTING AFFILIATIONS Le Mars Peninsula Sheboygan Southern Mutual Michigan Year Acquired 2004 2004 2008 2009 2010 Company Type Mutual Stock Mutual Mutual Stock Primary Product Line Personal Niche Personal Personal Pers./Comm. Georgia/ Geographic Focus Midwest Mid-Atlantic Wisconsin Mi
Slide 30: Net Premiums Written by Line of Business
NET PREMIUMS WRITTEN BY LINE OF BUSINESS (USD in millions) Q3 16 Q2 16 Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Personal lines: Automobile $59.8 $59.0 $55.1 $51.0 $55.6 $55.6 $52.3 $48.5 $53.2 $52.0 $50.5 $46.7 $50.9 Homeowners 34.2 33.4 25.9 28.5 33.2 33.4 24.4 27.4 32.0 31
Slide 31: Combined Ratio Analyses
COMBINED RATIO ANALYSES (in percentages) Q3 16 Q2 16 Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Stat combined ratios: Personal lines 103.6 100.2 95.6 104.2 101.4 99.4 98.4 106.5 95.2 99.5 102.7 99.3 97.9 Commercial lines 94.3 88.5 88.0 92.0 92.0 92.4 95.1 95.1 94.4 105.8 104.3
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